Qurate Retail, Inc.

Ladies and gentlemen, welcome to the Q-Rate Retail, Inc. 2022 Q1 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star 1 on your telephone. As a reminder, this conference is being recorded May 6, 2022. I would now like to turn the conference over to Ms. Courtney Chun, Chief Portfolio Officer. Please go ahead, ma'am.

Thank you. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent forms 10-K filed by our company and QVC with the SEC. These forward-looking statements speak only as of the date of this call, and Curate Retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Curate Retail's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. Please note we've published slides to accompany the earnings release. On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIDDA, adjusted OIDDA margin, free cash flow, and constant currency. Information regarding the comparable gap metrics along with required definitions and reconciliations, including preliminary note and schedules one through four, can be found in the earnings press release issued today or our earnings presentation, which are available on our website. Today, speaking on the earnings call, we have Curate Retail President and CEO David Rawlinson, Curate Retail Group CFO Jeff Davis, and available for Q&A, Curate Retail Executive Chairman Greg Maffei. Now I'll hand the call over to David.

Thank you, Courtney, and good morning to everyone. Thank you for joining us today and for your interest in Curate Retail. Our first quarter results reflect the continuation of the supply chain disruptions, execution challenges, and macro factors that impacted the second half of 2021. We also experienced a deepening of certain headwinds coming out of Q4, namely the fire at our Rocky Mountain, North Carolina, fulfillment center economic inflation, and geopolitical events. The total company revenue declined 12% in constant currency. I would note that we were up against a steep comparison in Q1 2021, in which total company revenue grew 13%. On a two-year basis, Curate retail revenue declined 1%. We believe the video commerce aspects of our business model are more relevant than ever. but we need to address inventory, operational, and execution challenges as we stabilize the base business. This work brings us back to the fundamentals. We need to curate great merchandise, offer it at attractive values, present it in an engaging manner, and deliver a superior customer experience so that customers repeat. The first step is architecting the team and organization to drive the change we need. We have already taken significant steps to do just that with the restructured QXH organization. The work is underway, but it will take time. Importantly, alongside stabilizing the base business, we have discussed moving faster to capitalize on the live stream shopping opportunity, where I remain very enthusiastic. We created a new business unit dedicated to streaming and digital platforms to pursue incremental growth opportunities. Momentarily, I'll discuss the factors that impacted QXH in more detail. First, let me provide a quick overview of each of our other businesses. QVC international revenue declined 7% versus 2021 in constant currency. Our European businesses faced ongoing supply chain challenges and product scarcity challenges, as well as weakened demand following the Ukraine invasion. In Germany, our largest business in Europe, February demand was down in the low single digits prior to the invasion. In the days immediately following, demand declined more than 30% and has returned to low double-digit declines at the end of March. In the U.K., we experienced a 15% to 20% decrease in viewership through the daytime hours and late evening news time slots. following the invasion. Japan was less impacted by these pressures. On a two-year stack, QVC International generated solid revenue and EBITDA growth. Zulily revenue declined 38% and continued to experience top-line pressure primarily due to supply chain challenges and reduced marketing efficiency attributable to cost inflation and privacy changes in our advertising partners. We are working to improve our unit economics, and most importantly, in mid-March, we were very excited to welcome Terry Boyle as president and CEO of Zulily. His experience delivering revenue and profitability growth at Nordstrom and Outlook, as well as in e-commerce and omnichannel retail, is an excellent fit at Zulily. We are confident that with his new leadership, a renewed focus on improved unit economics, and a normalized excess inventory and supply chain environment, Zulily has the capability to return to profitable growth. Cornerstone continued to be the star performer with revenue growing 19% and record first quarter revenue at each of its brands. This outstanding performance was driven by sustained consumer interest in home furniture and decor, strength in apparel at Garnet Hill, an early pull forward of outdoor furniture as consumers anticipate longer shipping times. Returning now to QXH. QXH faced continued supply chain disruptions, shipping delays, and downstream impacts from the fire at Rocky Mount. As we have discussed previously, supply chain challenges and shipping delays have an outsized impact on a single-item merchant like us. While historically this model has been a source of great flexibility and turning over our store front every night, the acute nature of current supply chain disruptions has been particularly challenging for our business model. In the first quarter, QVC-US shifted over half of its today's special values. HSN shifted about 60% of its today's specials. 72% of QXH's POs arrived late, and on average, over four and a half weeks late. The Rocky Mount fire impacted operations throughout our fulfillment network even more than initially anticipated, which put additional pressure on our ability to offer attractive merchandise on a timely basis. We lost 25 to 30% of our QVC-US fulfillment center capacity and had to reallocate incoming inventory through the remainder of our network. To put this in perspective, we lost 1.5 million square feet in one of our most productive fulfillment centers, creating operational challenges to process orders and returns efficiently, and causing capacity constraints at our other centers. We've started the process to replace some capacity with third-party logistics providers and sourcing other additional space. but this new space is less efficient since it does not have the same level of automation as Rocky Mountain. All these factors affected the amount of inventory available for sale and the added incremental fulfillment cost. Jeff will discuss the actions we are taking to address the inventory situation, but we know it will take some time to work through. We made the difficult decision not to rebuild our fulfillment center in Rocky Mountain. We believe this is the right step for the business long term. This decision was part of a comprehensive analysis of our overall fulfillment center network. In a landscape where consumer expectations for delivery continue to evolve, we examined our complete fulfillment center footprint and are making decisions based on where the network needs to be in the next five years to compete with the strongest players in retail. The QXH customer count declined across all cohorts in Q1, reflecting a combination of the factors I mentioned, as well as marketing inefficiency. While QVC-US best customers were down in count, they increased their average spend in the low to mid single digits, largely driven by growth in apparel. Sales deleverage impacted OIDA to a greater extent in Q1 than in previous quarters. In addition, we continue to experience cost inflation for freight rates, marketing, and fulfillment center labor. We also experience demurrage and surcharges for shipments waiting to be processed and higher fixed inventory obsolescence and bad debt costs, which Jeff will discuss. Looking forward, we are committed to maintaining cost discipline as an important driver of future value creations. As I've said before, we are undergoing a significant turnaround and are working through the factors within our control to be able to return the business to growth. Although the turnaround itself will take time, we are making decisions quickly, and I'm pleased with the advances we have made on a number of initiatives. We've restructured the QXH organization to reinvigorate growth at our core U.S. brands. We brought dedicated leadership to QVC-US and HSN and put our best operators in charge of each brand. We've given them accountability to grow the brands, master the value proposition for customers, refresh the product portfolio and bring a level of execution to the business that was missing. We also created a separate streaming division to generate new revenue streams and attract incremental customers. Our focus is to get better relevance, penetration and productivity from our strong streaming reach. Frankly there, we have not had enough focus on streaming in the past. We are starting from a position of strength with our distribution across streaming platforms and applications. We are now focused on driving engagement on these digital platforms. We launched transactional capability on QVC and HSN streaming services on Comcast X1 and Xfinity Flex to 19 million households. Since last June, viewers have been able to launch the free app by speaking, let's shop, into their Xfinity Voice remote. Now they can make purchases in the app directly using the remote. We've already introduced new streaming-only content. In April, we launched four new shows exclusively across our streaming app on Roku, Fire TV, Xfinity, and Apple TV. Total Look with our program host, Julia, features one staple apparel piece styled three ways. The first episode featured a Jason Wu spring dress. Vanessa Can't Cook with Vanessa Herring introduces QVC host Vanessa, who really can't cook, to celebrity mentors and food experts to enhance her cooking skills. 24-7 Deal Drop is an exclusive daily deal for QVC and HSN streaming app users. And the total experience is a show dedicated to a brand or personality with exclusive content. So far, we have featured Calista and Mally beauty products, as well as recipes, cooking ideas, and cookware from Blue Jean chef Meredith Lawrence. While we are in the early days of the organizational changes and turnaround. We feel good about the current business leadership. The leaders at QVC US and HSN are putting their imprint on their businesses, asking the difficult questions to uncover root causes and to elevate the accountability of their team. In summary, we are focused on stabilizing the core business and driving innovation in digital to enhance the value we create and deliver to shareholders. We believe the team understands the issues and has begun to address them. It's going to take quarters, now weeks and months, for our actions to become visible in the headline numbers, and we do not anticipate our recovery and turnaround will be a straight line. However, we are taking tangible action to address and mitigate the pressures as we execute on the long-term strategy. We have ongoing work on the long-term strategic vision, We'll be hosting an investor event on June 27th, streamed live from our headquarters in Westchester. We will provide additional detail on strategic initiatives at this time, and we hope that you will join us. Now I'll turn the call over to Jeff for a more detailed review of each of our businesses.